Domiciled or Non-Domiciled? Why it is important to consider

Please note that the domicile and non-domicile rules will be changing from 6 April 2025.

When putting a Will in place, it is important that your domicile is considered, and how it may affect your estate on death. Below is an overview of what domicile is, how it is defined, and why it is important to consider.

What is domicile?

Domicile determines which legal system applies to you. This is not always the same as your nationality or the country you live – for example, you could be a British citizen for a period but be defined as domiciled elsewhere. This can lead to complexities when drafting your Wills, particularly when it comes to the consideration of Inheritance Tax.

Your domicile is determined by one of three ways:

1. Domicile of origin: Assigned to you at birth, based on the domicile of one of your parents (this is dependent on the circumstance of your birth and to the domicile of your parents).

2. Domicile of dependency: Relevant to individuals under 16 or individuals who lack mental capacity

3. Domicile of choice: Acquiring a new domicile through residing in the new country and intending to reside permanently and indefinitely.

To be classed as domiciled in England, you must inhabit England, holding both non-moveable and moveable assets, with the intent to reside permanently.

There are many complexities to domicile and how it must be considered when drafting your Will.

Who qualifies as domiciled and non-domiciled?

To be deemed domiciled in the UK, you must have been originally born in the UK or you have remained in the UK for more than 15 years consecutively out of 20 tax years, as your main residence.

You can lose your domiciled status if you were to leave the UK and reside elsewhere for a minimum of 6 years out of 20 tax years, as a non-UK tax resident.

If you are unsure of your current domicile, we advise speaking to a tax advisor to determine your domicile.

Drafting your Will and the consequences in succession on death

The drafting of your Will is dependent on your personal circumstances. Below covers the different domicile scenarios that may need to be considered:

• Single Domiciled: Your UK assets and overseas assets are taxable for IHT purposes.

• Single Non-Domiciled: Only your UK assets are taxable for IHT purposes. Your overseas assets would be dealt with under the legal jurisdiction of the country in which they are held.

• Mismatched Domiciled Couple: In the scenario that you and your spouse have different domiciles, it complicates the position for IHT.

If one of you is defined as being domiciled in the UK, the UK domiciled spouse’s Will applies to all immovable and moveable UK assets.

Whereas the non-domiciled spouse’s UK Will would only apply to their immovable UK assets (e.g. property). Any moveable assets (e.g. cash/bank accounts) located in a different country will be dealt with under the jurisdiction of their domicile.

A mismatched domicile will then in turn affect your IHT position. If the UK domiciled spouse was to predecease, you would be liable for IHT on both UK and worldwide assets. Their estate would also have a limited spousal exemption and use of nil rate band, totalling £650,000. Any value in their worldwide estate over this amount would be taxed at 40%.

Whereas, in the scenario that the non-domiciled spouse was to predecease, their estate would only be liable for IHT on the UK assets held and the survivor would be entitled to full spousal exemption.

Reforms coming in for non-domiciled individuals

It has been announced in the Autumn 2024 Budget that the remittance basis of taxation for Foreign Income and Gains (FIG) for income tax purposes on non-domiciled individuals, will be abolished. The government intend to have a new residence-based FIG regime, as a replacement.

The IHT position will also move from being based on domicile, to being based on residence.

Due to the complexity of domicile, we strongly recommend speaking to a tax adviser to ascertain your domicile position.

We then strongly recommend contacting us so that we can review your Wills to ensure that these are drafted in the most efficient manner.

If you have any queries regarding the above, please call our Private Wealth & Succession team on 0113 207 0000.

*Blacks Solicitors does not provide financial advice, and the content of this blog post is for informational purposes only.